Therefore, the applicability of Section 17 of the Arbitration and Conciliation Act, 1996, relating to the procedure for appointment of arbitrators, has always been a moot question with respect to foreign-seated arbitrations. Domestic legislation formulated to aid a vigorous framework of arbitration proceedings in India affects both domestic and international arbitral practice.
The main controversy is regarding whether Section 17, which deals with powers and duties of arbitrators, extends to those arbitrations held outside India. For a clear exposition on this issue, it becomes necessary to analyze Section 17 and its scheme in the context of arbitration law.
Under Section 17 of the Arbitration and Conciliation Act, 1996, several powers have been provided to the arbitrator while arbitrating the proceedings. Certain of those powers relate to issuing interim measures for the protection of parties’ rights, making orders regarding procedures, and effectively managing the conduct of arbitration without any undue delay or uleaposition. It also provides that an arbitrator has powers to enforce compliance with his orders and decisions so that the arbitration proceedings may proceed sincerely without any hindrance and in a smooth manner.
As far as domestic arbitrations seated in India are concerned, Section 17 is very much welcomed and followed by Indian courts for the successful conduct and implementation of the arbitral process. The courts interpreted and implemented the provisions under Section 17 to maintain the authority of the arbitrators and also to protect the rights of parties in arbitration disputes.
However, the application of Section 17 to foreign-seated arbitrations has remained a controversial issue because of the very fundamental principle of territoriality in arbitration law. On a very basic level, foreign-seated arbitrations are conducted under the law of the seat, which is likely to vary from Indian arbitration law on many aspects of the procedure, the powers of arbitrators, or even mechanisms of enforcement.
The application of Section 17 to foreign-seated arbitrations turns on the interpretation of the Arbitration and Conciliation Act, 1996, and its extraterritorial application. Some argue that there is no reason for excluding the applicability of Section 17 if there is a foreign-seated arbitration where either both parties are Indian or the law chosen as the proper law of the arbitration agreement is Indian. They further submit that principles of procedural fairness and effective dispute resolution are to be followed, without regard to geographical location, for the purposes of the arbitration.
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To the contrary, critics submit that extending Section 17 to cover foreign-seated arbitration runs counter to party autonomy in terms of choice of seat and procedure. They further argue that, as much as possible, respect must be given to the jurisdictional limits and law of the place of arbitration, which set the conduct and enforcement of the arbitration proceedings.
The Indian courts have crystallized these two divergent views in a number of judicial decisions relating to foreign-seated arbitrations. It is thus that the requirement that the law of arbitration be clear and consistent has guided the Supreme Court of India and the High Courts in interpreting and applying Section 17 in cross-border arbitration disputes.
While the courts in India have adopted a pragmatic approach in resolving such disputes involving foreign-seated arbitrations, they do so keeping in mind principles of comitas of nations, international arbitration conventions, and parties’ intentions as expressed through the terms of the Arbitration Agreement. It is, therefore, seen that the courts have come to protect the autonomy of the seat of arbitration while giving arbitral institutions sufficient powers and authority to finally resolve disputes effectively without adversely affecting the rights of one party against the other.
The Indian courts have gone a step ahead to recognize the enforceability of interim measures and procedural orders passed by an arbitrator sitting in a foreign-seated arbitration, provided they do not offend public policy or the law of the seat. This bestows that eventually there will be less friction causing a problem to global trade and investment by redoubling India’s efforts to promote international arbitration as one of the preferred dispute resolution mechanisms for cross-border transactions.
On the whole, Section 17 of the Arbitration and Conciliation Act, 1996, is extremely important in domestic ad hoc arbitrations in India, but its application to foreign-seated arbitration remained subtle and dynamic in their evolution. Through the synthesis of principles of natural justice, party autonomy, and best practices of international arbitration, Indian courts therefore negotiate the labyrinth of cross-border arbitration disputes.
As India strives to further establish its position as a preferred seat of international arbitration, clarity regarding the extent to which Section 17 applies to foreign-seated arbitrations and how it would apply will become necessary. There is also a residual need for revisiting domestic arbitration laws to bring them in line with international practices so that the regime inspires confidence about deftly handling any dispute arising within or outside the country.
